The High Court will consider our ring-fencing plans at the public Sanction hearing on 27 February 2018, following the due process established under ring-fencing legislation. This process will include oversight of the measures we are taking to protect members of Barclays’ UK defined benefit pension scheme (referred to as the UK Retirement Fund or “UKRF”). Here we explain in detail the background to these arrangements, and answer questions you may have.
Barclays’ UK defined benefit pension scheme (referred to as the UK Retirement Fund or “UKRF”) is currently sponsored by Barclays Bank PLC (“BBPLC”). BBPLC currently carries on a range of banking activity including day-to-day banking services for retail, business and corporate customers, payment services, credit cards, wholesale, international and investment banking.
Barclays will satisfy the requirement to ring-fence day-to-day banking services for retail and small business customers by transferring certain customers, assets and liabilities from the existing banking entity, BBPLC, to a new bank, Barclays Bank UK PLC (“BBUKPLC”) in April 2018. The two entities will operate alongside, but independently from, one another as part of the Barclays Group under the listed entity, Barclays PLC.
BBUKPLC and its subsidiaries will provide day-to-day products and services to individuals and businesses (with a turnover less than £6.5m) in the UK. Products and services designed for our larger corporate, wholesale and international banking clients will continue to be offered by BBPLC and its subsidiaries.
BBUKPLC started to participate in the UKRF in September 2017, alongside the existing bank, BBPLC, which has been and remains the principal sponsor of the UKRF. As a consequence of ring-fencing legislation, this joint participation arrangement can only continue until 2025.
What is happening to the UKRF as a result of ring-fencing?
Barclays and the Trustee have agreed that BBPLC will remain the sponsoring employer of the UKRF post the expected date of ring-fencing on 1 April 2018. BBUKPLC (the new ring-fenced bank) will participate in the UKRF until 2025, on terms which mean that it will automatically take on all of BBPLC’s obligations with respect to the UKRF in the unlikely event of a BBPLC failure during this period. Barclays and the Trustee also agreed a package of additional measures designed to give continued security to the UKRF, in particular the provision of a pool of up to £9bn of high quality assets as security for the UKRF’s deficit and recovery plan contributions.
Why isn’t BBUKPLC going to be the sponsor?
Ensuring the long-term security of the UKRF was the most important part of our ring-fencing plans. The UKRF’s current financial position means that it places significant demands on the sponsoring bank. BBPLC will have more than twice the capital of BBUKPLC and a more diversified business and as a result we believe it is better placed to continue to be the sponsor of the UKRF after 1 April 2018. BBUKPLC will continue to participate in the UKRF after this date until the joint participation arrangement has to end in 2025.
Why couldn’t the scheme be split between BBUKPLC and BBPLC?
This was one of the options considered, but given the particular history of the UKRF, it would have been extremely difficult to implement and would have required an arbitrary allocation of many individual members to different funds. This was therefore considered not to be in the best interests of the members of the UKRF as a whole.
Why does BBUKPLC have to leave in 2025?
Ring-fencing legislation means that BBPLC and BBUKPLC can’t both be employers in the UKRF after 2025. Barclays currently considers that BBPLC is the best long-term sponsor of the UKRF given its larger size and more diversified business and therefore has proposed that BBUKPLC should leave in 2025, which the Trustee has accepted. That said, Barclays will keep this under review, and could seek to agree that BBUKPLC should be the sponsor post 2025 if this makes more sense at the time.
But won’t BBUKPLC be safer?
All banking involves the management of risks and all banks are subject to the risk of failure. It is a misconception that a ring-fenced bank will be guaranteed by the government and that a non-ring-fenced bank will be subject to light touch regulation. Ring-fencing sits alongside many other bank regulatory reforms which, taken together, reduce complex linkages in the banking system and give regulators the tools they need to get struggling banks, whichever side of the ring-fence, back to full strength without going insolvent and without using taxpayer’s funds. Put simply, both BBUKPLC and BBPLC will be incredibly important to the UK economy, so we need to ensure both banks can survive a financial stress, and our ring-fencing plans are designed with this in mind.
What does the Pensions Regulator think about Barclays’ plans?
Barclays is confident that the proposed ring-fencing transfer scheme (RFTS) does not have an adverse impact on the UKRF. We have discussed our plans in detail with the Pensions Regulator who, of course, reserves its right to intervene in the usual way, should it see fit to do so in the future. Barclays will continue to engage with the Pensions Regulator and with the Prudential Regulation Authority (Barclays’ lead regulator) as appropriate until we fully implement all changes required to comply with ring-fencing legislation.
Why hasn’t Barclays contacted me before now about these changes?
Barclays has been in dialogue with the Trustee, who acts as the members’ representative, and in turn communicates with members as appropriate. This approach was agreed by the court in a previous court hearing to consider Barclays’ ring-fencing communication plans. The Trustee provided a detailed description of the proposals in its Annual UKRF Newsletter issued in August 2017, and has written to all members with more detail in January 2018.
What happens next?
If you think that you may be adversely affected by the RFTS, you have the right to object and to have your objection(s) heard by the Court.
To do this you will first need to file a written statement to the Court (“Statement”) and a copy must be sent to the Prudential Regulation Authority. More information on the RFTS, including a timetable for the Court process, and how to make a Statement can be found at home.barclays/ring-fencing-explained. You have the right to appear at the Court in person or to be represented by a lawyer.
The Court has already received various written representations from members of the UKRF. These Statements will be considered at a public hearing due to take place on 26 and 27 February 2018 at the High Court in London. The RFTS will only be approved by the Court if the judge is satisfied that it is appropriate in all circumstances to do so.
We are here to help
Further information about Barclays’ ring-fencing plans can be found at home.barclays/ring-fencing-explained.